By: Jonathan Boyd | 25 Jan 2012

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Nalini Bonnier recently joined Swedish wealth manager Catella as chief investment officer with a particular responsibility for global allocation. She explains the decision to place client assets exclusively in ETFs.

When Nalini Bonnier joined Catella Förmögenhetsförvaltning – the wealth management business of Sweden’s Catella Group with some SEK4bn (€452m) AUM – it was with specific objectives in mind.

“I didn’t want it to be like the big banks, which push their own funds in portfolios [the Group also manufactures through Catella Fonder]. The CEO said ‘that’s fine, don’t use our own funds because we shouldn’t be thought of as pushing our own product’”.

“I started by analysing a lot of funds. But, what I felt after a relatively short period of time, and after studying the research, is that most actively managed funds do not beat their indices over time. That is why I have decided to, as much as possible, invest in ETFs.”

“There is just one small area, bond funds, where there is not enough choice, where we have got an actively managed fund. But I am aiming for 100% over time. I feel there is so much lost in annual management charges of 1.% to 2% or more.”

Cost Effectiveness

“It is very cost effective for the customer, and there is never any suspicion about recommendations, because it is simply the most cost-effective ETF. “

“They are very transparent, so you can see immediately what you have invested in. And you have a lot of flexibility – you can close the portfolio in a couple of minutes.”

Bonnier says that relative to, for example, Finland’s Taaleritehdas which has also pursued an ETF-only strategy for client portfolios, there are still some challenges specific to the Swedish market. In this case, the Finnish company may have slightly more choice because Finland is in the eurozone.

“We’re denominated in SEK. It is difficult to find as big a range in SEK as in euros. Of course some are in dollars and some in euros. But, the Finns still have an advantage that way.”

Overall, however, there is plenty of choice in the market and it is possible to find focused investments both by sector and by region. Indian and Brazilian Consumer ETFs are two examples.

Another difference thrown up by the focus on ETFs is in respect of hedging, including hedging of currency. Bonnier has experience of hedging strategies from previous roles running funds, but notes that in this case “because we are designing portfolios for our customers we need to run a disclaimer for them, where they need to hedge themselves.”

“Unfortunately, with discrete portfolios it is up to the customer to take a view on this.”